charliesangelsperth How will the Federal Budget Help/Hinder? — Mortgage Sandbox
How will the Federal Budget Help/Hinder?

How will the Federal Budget Help/Hinder?

In early April, the Canadian Government released its budget for 2022.

In the budget, Finance Minister Chrystia Freeland announced 29 new housing-related measures. The economists at RBC estimate the budget allocates the equivalent of $10 billion over five years to help solve housing challenges.

Most of the measures were copy-pasted from the Liberal Party's election platform. For our part, we give points for trying to walk the talk. However, will these initiatives succeed?

Supply-side measures

  1. Housing Accelerator Fund: The CMHC will fork out $4 billion over 5 years to help municipalities speed up construction approval times, update zoning and permit issuance systems and increase densification. It targets the creation of 100,000 additional units by 2024-25. However, it is very dependent on Municipalities cooperating with the federal government. As well, there has been a housing crisis for at least a decade, it is difficult to argue that the municipalities we waiting to solve the problem because there were holding out for federal hand-outs. This fund likely won't make a dent in supply. In a best-case scenario, 100,000 units over five years across Vancouver, Victoria, Edmonton, Calgary, Winnipeg, Toronto, Ottawa, Montreal, Quebec City, and Halifax (for example) would amount to an extra 2,000 homes per year per city. 🤷

  2. Rapid Housing Initiative extended by two years to 2023-24 ($1.5 billion) to create at least 6,000 new affordable housing units. Once again, split across 10 major Canadian urban centres, this won't amount to much.

  3. Co-op Financing Programs ($1.5 billion). The government expects this to help create 6,000 co-op housing units. Not to sound like a broken record, but these numbers would only be impressive if they were referring to 6,000 per city, but they're not.

  4. National Housing Co-investment Fund will advance the spending of $2.9 billion by 2025-26, accelerating the creation of up to 4,300 units and the repair of up to 17,800 units for vulnerable Canadians. This is exciting because vulnerable Canadians often don't get much attention in the housing market. There should have been more focus here.

  5. New Multigenerational Home Renovation Tax Credit of 15% on the construction of a secondary suite for a senior or adult with a disability (up to a maximum cost of $50,000), providing up to $7,500 in support starting in 2023.

  6. Top-up the Affordable Housing Innovation Fund with an extra $200 million, with $100 million earmarked to develop and scale-up rent-to-own projects.

  7. Linking Federal Infrastructure Funding to Local Housing to make access to infrastructure funding conditional on commitments to increased housing supply.
    This one is probably the most important. Linking technology and transportation infrastructure to housing can be a big carrot for municipalities, however it could get politicized by some municipalities.

  8. A variety of programs to foster the ‘greening’ of housing.

Non-Core Demand-side Measures

  1. A two-year ban on foreign buyers of non-recreational residential properties, with exemptions given to permanent residents, temporary foreign workers and students, and non-residents buying their primary residence in Canada.
    Foreign buyers have not been a major factor during the pandemic boom and there are so many loopholes in this proposal, such as allowing foreign students to but homes, that it will have close to zero effect.

  1. The anti-flipping tax would apply to capital gains made on principal residences bought and sold within less than 12 months. It will become effective January 1, 2023 and contain several exemptions to account for special life circumstances (e.g. death, divorce, new job).
    This adds some complexity. Flippers could AirBnB the place for 6 months before completing the renovation and flip.

  2. All assignment sales of newly constructed homes will become fully taxable for GST/HST purposes, starting May 7, 2022.
    This should have always been the case, but it won't help with affordability. It's a tax policy rather than a housing policy.

Core Demand-side measures

  1. Introduction of a First Home Savings Account (estimated to provide $725 million in support over five years) in 2023 in which Canadians will be able to invest up to $40,000 tax-free.
    🤔 Right. The argument is that people can't afford a house because they didn't have enough tax sheltering for their savings. This really only serves the wealthiest Canadians who have used all the room in their RSP and TFSA.

  2. Doubling the First-Time Home Buyers’ Tax Credit amount from $5,000 to $10,000, representing up to $1,500 in additional support to homebuyers. It will apply retroactively to homes purchased since January 1, 2022.
    Okay, so this should cover the legal fees - thanks.

  3. Buyer’s bill of rights: the federal government will engage with provinces and territories over the next year to develop and implement a buyer’s bill of rights and introduce a national plan to end blind bidding.
    This should help a little since studies have shown people pay more in blind bids than they would in other situations but the real estate industry is g=earing up to fight this one.

  4. One-time $500 payment in 2022-23 to Canadians facing housing affordability challenges. The measure is estimated to cost $475 million, though details will be revealed at a later date.

Overview

The federal proposals come at the same time as the Bank of Canada has raised rates.

The Bank of Canada's rate changes will have a greater impact on the property market than all of the federal government measures combined.

You may as well ignore the budget and instead pay attention to the interest rate forecast.

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